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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: anti-forestalling rules: early step within Section 554C(1)(a)

Schedule 2 paragraph 53 FA 2011

Conditions
Rules
Example: operative date
Example: relationship with benefits code

Suppose a relevant third person (P) pays a sum of money to a ‘relevant person’ (see EIM45090), and thus takes a relevant step within Section 554C(1)(a), between 9December 2010 and 5 April 2011 (inclusive). This transaction is labelled ‘the early step’.

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Conditions

Anti-forestalling rules apply if three conditions are met. These conditions are bulleted below.

  • P takes the early step between 9 December 2010 and 5 April 2011 (inclusive)
  • The early step would have given rise to Part 7A income if the Part 7A rules had come into effect on 9 December 2010 that is, the arrangement would have come through the Section554A gateway and none of the exclusions would have applied.
  • None of the payment is chargeable to income tax by virtue of Schedule 34 FA 2004 (non-UK pension schemes).

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Rules

These are the anti-forestalling rules relating to the taxation of employment income.

  • The early step gives rise to Part 7A income.
  • The value of the early step counts as A’s employment income for 2012-13. Apart from that, the Part 7A rules apply by reference to the date when the early step was actually taken.
  • The early step can be taken back in whole or in part. To the extent that the person to whom the payment was made repays the sum to P before 6 April 2012:

    • you reduce A’s employment income, on a just and reasonable basis, to whatever amount is appropriate, and
    • the Part 7A rules do not apply to the reduced amount.
  • Section 554Z5 (amount of Part 7A income: overlap with earlier step) does not apply to the early step. You ignore the early step when applying Section 554Z5 (seeEIM45725).
  • Section 554Z12 (amount of Part 7A income: relevant step taken after A’s death etc) does not apply to the early step. See EIM45865.
  • For PAYE purposes, you treat P as having taken the early step on 6 April 2012. See EIM11813.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

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Example: operative date

A loan is arranged before 9 December 2010.

The loan is actually made, to a relevant person, on 9 December 2010. This is a relevant step within Section 554C(1)(a). See EIM45060. The other conditions are met for the arrangement to come through the Section 554A gateway, and none of the exclusions applies.

The Part 7A rules do not apply to the arrangement of the loan. But the anti-forestalling rules catch the advance of the loan.

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Example: relationship with benefits code

A loan is made on 9 December 2010. The facts are such that the loan is within the antiforestalling rules.

The loan is repaid to P in full before 6 April 2012. Consequently, the anti-forestalling rules do not apply.

The general rule is that the Part 7A rules take priority over the benefits code. See EIM45705.

But, in this case, the repayment of the loan has disapplied the Part 7A rules. Other things being equal, therefore, the loan will be within the benefits code. On the benefits code and loans, see EIM26101 onwards.